Frontline jumps as rates improve

Frontline (OSE: FRO) shares rallied almost 30% on Friday. CEO Jens Martin Jensen had told Reuters in an interview on Thursday afternoon that tanker marker has seen a big turnaround on massive amount of ships transporting oil to China from the Persian Gulf. Jensen said that day rates for oil tanker had recovered to an interval between 25 and 30 thousand dollars.

Frontline shares haven’t been trading this high since last summer and the recovery is quite surprising considering the still atrocious quarterly numbers in the previous quarter and still somewhat wobbly balance sheet despite added strength gained from the Frontline 2012 arrangement. Jensen said the market is far better than the company had expected and hopes this is a sign of an increase in China’s refinery capacity.

Big changes at Frontline

Investors had been wondering how shipping tycoon John Fredriksen would bail out Frontline Ltd (OSE: FRO), since it seemed unlikely he would let what was the original root of his entire business empire to rot. On fundamentals alone, it seemed like the company might even go under. Fredriksen came up with an interesting solution whereupon a new company will be started and Frontline sells 6 VLCCs, 4 Suezmax tankers and 5 VLCC newbuilding contracts to this company called Frontline 2012 at current fair market value of 1.12 billion USD. This considerably lessens Frontline’s debt and did not throw retail investors under the bus either.

Frontline 2012 is even planning to order numerous new tankers. The rationale here is that technological advances help newbuilds consume that much less bunker and since their prices have also come down that it may be a better investment than buying old ships from other industry companies even though the entire industry struggles with overcapacity. Fredriksen thinks he is sniffing a market bottom.

Frontline agreed on charter rate reductions with major counterparties during the quarter. Fourth quarter net loss was 343.7 million USD and loss per share 4.41 USD. Excluding sale of assets and deferred gains the numbers were 30.8 million and 0.40. Frontline is left with 66 vessels and two newbuilds.

General market activity has increased with many issues tied to Iran tensions. Frontline says that shipping lending banks are squeezing the firms in the industry and thus delivery slippage will continue. Frontline has eliminated bank debt and financial covenants and says it now should have the strength to honour its obligations created by the weak tanker market. The company is hoping for a market rebound in the next few years. The stock is up slightly on a positive morning for the exchanges overall.

Other week 49 2011 news from Nordic companies

Here are some additional newsworthy events in brief:

Financial Times is reporting that Nokia is coaxing interest of potential buyers to divest its luxury phone brand Vertu. Some private equity firms seem interested and the sales price should be several hundred million Euros.

Eu/Norway fish talks for 2012 North Sea fisheries resulted in increases for herring, haddock and whiting quotas (with North Sea herring quota more than doubled to 405,000 tons), with cod and saithe quotas down a notch. Further talks will be made for mackerel total allowed catch as a solution in the mackerel war with Faroe Islands and Iceland is sought after.

Christmas demand has raised Norwegian salmon spot prices some 20% within a few weeks. While still far away from 45 NOK per kilo levels of this summer, this breaks a lengthy trend straight down and farmed salmon companies have responded positively.

Vestas turbine in Ayrshire wind farm, Scotland caught fire in hurricane Bawbag.

Maersk Drilling received LOA from Det Norske Oljeselskab (OSE: DETNOR) to Draupne license in the North Sea for newbuild jack-up rig, XL Enhanced 2, which is designed for use in ultra harsh environment and is currently under construction in Singapore scheduled to be delivered in 2014. The total value of the three year contract is over 400 million USD.

Outotec has acquires furnace refractory demolition business Kiln Services Australia. The company envisions doubling Kiln’s annual sales over the next three years.

Højgaard Industri, a part of Højgaard Holding (CPH: HOEJ B) won a new management contract‏ with Banedanmark for the production of concrete sleepers at the Fredericia facility. The previous contract with between the companies was coming to a close and Højgaard Industri won out in the contract award procedure.

There have been wild swings in Frontline (OSE: FRO) stock after its creative restructuring plan was made public this week.

Kone Corporation will supply elevators and escalators to Lishui Wandi Plaza. The large eight building complex in the city of Lishui in Zhejiang province should be completed in 2013.

Clas Ohlson (STO: CLAS B) missed expectations for 1.5.2011-31.10.2011 period.

TTS Group ASA won two contracts from Hyundai Mipo Dockyard co. Ltd worth around 117,5 million NOK in total.

Purchase-to-pay and Financial Management solutions software provider. Basware Corporation lowers 2011 estimates.

Cevian keeps buying into Tieto ((OMXH: TIE1V, OMXS: TIEN).

Neste Oil is selling its 50% portion of iso-octane, a gasoline component produced from Butane, plant in Edmonton, Canada to Keyera Corp for 99 million USD.